Texas Sales Tax Rules Have the Christmas Spirit

If you’re doing business in Texas during the holidays, you should get ready for some dizzying rules ripe with contradictions, loopholes, and good old-fashioned switcheroos.

The Texas State Comptroller has created a list of holiday Texas sales-tax rules that you should know if you’re buying or selling in the Lone Star State. Here are some of the wackiest rules on the books.

Decorations

Whether you’re buying decorations, selling them, hanging them, or using them in a commercial space, TX sales tax rules will keep you guessing. For instance, Christmas trees and other holiday plants like mistletoe and holly are taxable unless you or a buyer can provide a qualified sales tax exemption. But if you sell Christmas tree decorating services, you should only charge sales tax on those services if you also sell the decorations. If the customer provides them, the service is tax-free.

The same holds true when you charge to decorate a customer’s home. If they provide the materials, you should not charge sales tax, but if you also sell the decorations, the entire service should be taxed.

Things get a little trickier when it comes to decorating a nonresidential structure. The Texas Comptroller uses the same rules that apply to remodeling. Since remodeling a nonresidential structure is taxable, if you use permanent hangers or fixtures when decorating a customer’s home, the service is taxable because you are “remodeling” the space. If you don’t make any permanent changes, use the same rules for residential homes.

Finally, if you paint a customer’s windows, that service is considered taxable by TX sales tax rules.

Holiday Characters

If you offer letters from Santa or other such services, the Texas sales tax rules are just as confusing. For example, if you provide letters from Santa Claus, the charge for those letters is taxable. Likewise, if you offer phone calls from Santa, you should charge sales tax on those calls as well. However, if you are paid to appear as Santa in person, you won’t be required to charge sales tax on the fee. But if you charge admission to see Santa in person, the admission charge is taxable. And if you have to rent a costume for Santa, you should expect to pay sales tax on the fee.

Gift Baskets

If you sell holiday gift baskets online, Texas has some specific rules about what is and isn’t taxable. The State Comptroller’s Office asks you to proportion the contents of the basket, and if the majority of it consists of taxable goods, then you should charge sales tax. But if the basket is mostly filled with nontaxable items, it is not subject to sales tax. You can make this determination by basing it on what the items cost when you purchased them from suppliers, or make the call by looking at the fair market price of the items.

Miscellaneous Items

Finally, Texas has their say on the most minuscule of holiday services. For instance, if you choose to offer gift wrapping to your customers, you should charge sales tax on the service. The only exception is if you offer to wrap items that customers purchased from another store. Then the service is not subject to tax.

And if you offer layaway to your customers and charge them a handling fee, you should not charge sales tax on that fee. The same goes for a cancellation fee or restocking charge -- Texas sales tax laws say those fees are not subject to tax.

Have other questions about managing sales tax compliance in Texas? Take a look at our Guide to Texas Sales Tax. It will help you establish a foundation of knowledge for dealing with ongoing collection, filing, and remittance of Texas sales tax.